Readers are advised to consult their financial planner before making any investment. (By Ashish Gupta, Volatility Trader and Derivatives Expert)ĭisclaimer: This is the author’s personal opinion. Readers can accordingly adjust the position size if they have high beta counters in their portfolio. It works if the portfolio is correlated to the benchmark index Nifty 50. Please note that this is not off the shelf calculation for every portfolio. If the fear and uncertainty is still around, the position can be closed and a similar position can be initiated in next month’s options. One important thing to note here is you should not keep this trade open when there is less than 20 days to expiry. There won’t be much loss if the market stays here or goes up.Īnd in case there is a 5-6% correction, it would give a cushion of again about 3-4% protection. News Lone Star Overnight (LSO) Shares 2022 Regional Shipping Predictions, Preparations for Peak Season Lone Star Overnight (LSO) Announces New Leadership. Assuming the same 20L portfolio again, one can sell 2 lots of 17500 Oct month end put options and buy 6 lots of 17000 put options again from the Oct expiry. This method requires to select an expiry that is at least 40-45 days to go. This can be deployed currently to hedge their portfolio. Put Backspreads – This is a bearish strategy that involves selling put options near to the index spot value (also known as ATM option or slight OTM option) and buying more OTM options. If you are not well versed with options pricing and behavior, this is not a recommended approach.ģ. One downside to this method is that if the markets were to go up substantially higher from these levels ignoring all the pertaining risk, this strategy can quickly turn into losses. The definition also says crashes are usually. Note that this only brings the cost of buying puts down to some extent and not fully. A stock market crash, as defined by BusinessDictionary, is a steep and rapid decline in share prices on a stock exchange caused by panic selling. So, assuming the same 20L portfolio and one buys 4 lots of 16000 strike put options worth 40k, they can simultaneously sell 20000 call options to reduce the cost of buying put options. Short Risk Reversal – This is similar to the previous method but the cost of buying put options is reduced to a certain by selling call options. For active investors, this is an approach that can be done in weekly/monthly options too.Īlso Read: Looking for a home loan? Check out lowest interest rates based on credit scoreĢ. Stock Photo - designer hand working and smart phone and laptop with social media. If there was a 10% correction in indices, this method would give them a cushion of about 4-5% protection depending on when (and if) that correction happens. Assuming a 20L portfolio, one can buy 4 lots of 16000 strike Dec put options worth 40k. Looking for a home loan? Check out lowest interest rates based on credit scoreīased on the exposure one has in the market and their view, they can accordingly buy the put options.
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